A trader\'s money management system

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c12 JWBK182-McDowell April 25, 2008 16:15 Printer: Yet to come

108 A TRADER’S MONEY MANAGEMENT SYSTEM

7.Average losing trade: ($246.14)

8.This month’s profit/loss on trading account: 15 percent profit

What we learn from a significantly profitable month is the areas of

strength we can work on duplicating. Here’s a quick analysis of what we

can learn from this monthly trade ledger:

Win ratio is 46 percent for this month, much higher than the annual ra-

tio of 39 percent. This confirms that the direction we want to continue

in is to increase the win ratio.


Payoff ratio is $1.91, right on target for the annual average.


Commission ratio is 14 percent for this month. That is much lower than

the annual commission ratio of 25 percent.


The month of January had one of the largest winning trades of the year,

with a profit of $2,009. We will take a look at the trade posting card for

this trade later in this chapter to identify what characteristics of this

trade we want to duplicate.


No big news with regard to the average win and average loss—they are

on target with the annual average.


Big news on the profit of 15 percent on the trading account for this

month

The observations for the month of January will be useful and will lead

us to look further at the winning trade of $2,009.

Monthly Trade Ledger for June 2007,

12 Percent Loss

Now let’s look at the most challenging month of this year, June (see Figure

12.3), where there was a loss of $2925.80. Here are the eight vital statistics

for the month of June:

1.Win ratio: 24 percent

2.Payoff ratio: $1.80

3.Commission ratio: n/a

4.Largest winning trade: $1,335.52

5.Largest losing trade: ($460.83)

6.Average winning trade: $560.80

7.Average losing trade: ($311.43)

8.This month’s profit/loss on trading account: 12 percent loss.